2020 Bulkers Ltd

At this time, I would like to welcome everyone to this 2020 Bulkers earnings call for Q4 2024. This call is being recorded. If you have any objections, please disconnect at this time. All participants will be on listen-only mode throughout the presentation, and afterwards there will be a question and answer session. I would now like to hand it over to the speakers. Please go ahead.

Thank you, operator. Welcome to the Q4 2024 conference call for 2020 Bulkers. As last time, I'm joined here today with our CFO, Vidar Hasul, and our Chief Commercial Officer, Lars Christian Svensson, who will be taking over as CEO on April 1st. Before we start the presentation, we would like to remind you that we will be discussing matters that are forward-looking. These forward-looking assumptions are based on the company's current views with regards to future events and subject to risk and assumptions subject to uncertainties. Actual results may differ materially. And with that, I'll move over to the highlights for the quarter. We reported the net profit of $5.1 million and EPS of 23 cents. Trading-wise, we achieved time chart equivalent earnings of approximately 27,100 per day gross, which compares to the Baltic 5TC average of 18,300. We declared total dividends of 34 cents per share for the months of October through December. This corresponds to just over a 12% analyzed yield based on our current share price. For January, we achieved time chart equivalent earnings earnings of approximately 16 700 per day compared to the baltic 5 tc average which was 10 150. and today we also declared a dividend of three cents per share for the month of january and with that i will leave it over to vidar thank you magnus 2020 bulkers reports a net profit of 5.1 million dollars for the fourth quarter of 2024.

Operating profit was $7.4 million and EBITDA was $9.7 million for the quarter. Earnings per share was $0.23. Revenues were $14.8 million for the fourth quarter. The average time charted equivalent rate was approximately $27,100 per day gross. Vessel operating expenses were $4 million, and the average operating expenses per ship per day was approximately $7,300 in the fourth quarter. G&A for the fourth quarter was $0.9 million. 2020 Bolkus charged Himalaya Shipping approximately $0.4 million in management fee for the fourth quarter, which is recognized as other operating income in the financial statements. Net financial expenses were $2.1 million, which primarily consists of interest expense. Shareholder's equity was $151.9 million at the end of the quarter. Interest-bearing debt was $112.5 million at the end of the fourth quarter and is non-amortizing until maturity in April 2029. Cash flow from operations was $6.4 million for the fourth quarter. Cash and cash equivalents were $16.1 million at the end of the quarter. The company declared total dividends and cash distributions to shareholders of 34 cents per share for the months of October, November and December 2024. That completes the financial section. And now back to you, Magnus.

Thank you, Vidar. Before we go into the market section, I just want to remind you of our very competitive cash breakeven. Our low breakeven is driven by low and attractive debt, as well as highly competitive G&A. We currently breakeven at around 11,500 per day, meaning we only need a cape size market of around 6,800 to achieve that when you include our premium for the lower fuel consumption, higher cargo intake, as well as the scrubbers compared to standard cape size. This, of course, means that we can sustain trading in the weaker spot market, like the one we're witnessing today, without being forced to take longer, long-term contract coverage at what we deem to be unattractive levels. Now, as you know, our policy is to pay out monthly dividends equal to our free cash flow. This chart illustrates the theoretical dividend capacity based on various rate scenarios for standard cape-sized vessels. The March through December FFA curve, where we could lock in the fleet today if we wanted, would imply an annual run rate dividend capacity of around 15 kroner per share, or around 12% yield on today's share price. And with that, I will leave it over to Lars Christian for the market section.

Thank you, Magnus. The overall market activity in 2024 was solid for Cape Sison Newcastle Max with a total ton mile increase of 3.2% from the previous year. Iron ore, especially the volumes from Brazil, performed well and set an all-time high record for exports, which explains the 5.2% increase year over year. From West Africa, the bauxite exports grew 17% from 2023, also reaching all-time high export levels. So what happened with the historically strong Q4? To try and illustrate this, we ask you to look at the graph on the left, where we see good Cape-sized ton-mile growth in the first three quarters. However, the gains quickly evaporated in the fourth quarter. A further look into the sentiment shows that although the bauxite and iron ore performed well, the coal demand on Cape-sizes in the period slowed down significantly. We will show you shortly that the coal demand from China was strong in 2024, also in Q4. But as you can see from this slide, the conclusion is not that the coal trade halted, but due to the slow Panamax market, the smaller sizes cannibalized the Cape-sized coal volumes, as the Panamax historical grain and soya bean season from East Coast South America and the U.S. Gulf did not materialize and thus left the Panamax segment more competitive than Cape-sizes on coal. We have mentioned record export volumes of iron ore and bauxite from the Atlantic Basin earlier in this presentation. This is also well reflected in the Chinese import figures from 2024. We had all-time high Chinese iron ore and coal imports, which yet again indicates that the Chinese appetite for these commodities continue to increase. Let's have a look at the world steel production. The Chinese steel production is estimated to remain flat for the next two years, but it's interesting to observe that the Chinese steel exports increased 25% year-over-year to a total volume of 95 million metric tons. The rest of the world has improved their crude steel production since doldrums during COVID, and forecasts for 2025 and 2026 is an increase of 6% and 5% respectively. Pre-COVID levels are projected to be reached in 2027. With heavy investments made in onshore logistics in Guinea over the last five years, it's not surprising to see steady and solid bauxite exports. In 2024, the Guinean bauxite exports increased with 17%. So far in 2025, we've seen the growth continue with about 10% year over year. 90% of the bauxite trade from Guinea is shipped on Cape size and Newcastle max vessels. And with the bauxite inventories in China down about 10% and prices per tonne about 25% year over year upwards, it's clear that the demand will continue to grow in 2025. For the first time in history, it's currently transported more bauxite than coal on Cape Sice and Newcastle Maxis. As many of you are aware, Guinea is not only busy with bauxite. By this year, the country will also commence exports of iron ore from the New Simandou mine. The latest updates indicate 24-month ramp-up period versus the 36-month ramp-up previously communicated. This will provide the market with an additional 120 million tonnes of iron ore per annum from 2027. With the additional valour capacity increased by 2026, we're looking at a total of 170 million tonnes of iron ore from the Atlantic, which mostly will be exported to China, i.e. grade for tonne miles. These volumes will require 158% of the total order book alone, which should be encouraging even for the most conservative onlookers. It's nice to see new fundamental trades being established for the Cape size in Newcastle Max sector, but it's just as rewarding to look at a record low order book, which stands at 7.2% of the existing Cape size fleet. The active shipyards are still 50% down from the peak of 2008, and it will be challenging to build any meaningful fleet capacity to distort the favorable vessel supply dynamics over the next years. In addition to the supply story, we are faced with a large increase of dry docks due to mandatory special surveys required on a merchant vessel every fifth year. The vessels delivered in 2010 accounts for 10% of the total Cape size fleet and will have to go in for 15 year special survey in 2025. In addition, You will have the five- and ten-year special service as well, which means that 25% of the total cape size in Newcastle MAX fleet will have to fight for a dry dock space this year. We estimate a total of 8.1% and 9.7% additional off-hire on the total fleet due to dry docks alone in 2025 and 2026, not factoring in potential congestion and waiting times. We have one of the youngest Newcastle Max fleet in the market, but still not immune to the mandatory five-year special service. Four of our vessels will enter dry dock in the first half of 2025, where we take the opportunity to upgrade our assets to increase vessel performance and to exceed emission regulations. These dry docks are already funded by cash reserves set aside from sister vessel sales in 2024, and our shareholders do not need to worry about the direct dry dock cost hampering our dividend capacity. Thank you. And with that, I pass the word back to the operator.

Thank you. If you do wish to ask a question, you will need to press five star on your telephone. To withdraw your question, please press five star again. There will be a brief pause while questions are being registered. Our first question comes from the line of Bendy Knuttingnes from Clarkson Securities. Please go ahead. You will now be unmuted.

Hello? Hey. Just kicking off where you left off, really, on the dry docking. Besides the obvious effects of fire days and catfix, are there any other P&L effects we should consider? I mean, are there any cost savings associated with the upgrade, or is this more of a measure to stay compliant?

Hi there, it's Lars Christian here. We are upgrading the ships with low-frequency paint, which means that the fuel optimization on the vessels will be better than what we currently have today. So we are in that budget that we put in. These include all these upgrades and we expect better performance of all the vessels. The only X that you can think about here is if the amount of days in the dry dock period should be less or more. Our indications at the moment now is that they're keeping the dock ready for us and we should be within the projected scope.

Right. And I think just to add one thing to that as well, we are doing performance-enhancing measures, but I don't think you should expect any change in the premium achieved. It's more about keeping five-year-old vessels up to the speed and consumption standards that they had when they were new.

Yes, that makes sense. And just one on the market as well. You've talked on sort of the two main items here, but on the coal sides or coal splitting, is there a level where you expect to see sort of the steamer amount of that paid for the Panamaxes? Or is this something that you can do sort of for eventually all coal volumes?

No, I think we've seen the levels now where the Panamaxes in the Pacific especially has increased with 30% in a week. So you're coming to a point now where it makes sense to keep the coal back on the Cape sizes and Newcastle maxes rather than splitting it down on the smaller sizes. But it also depends on where you are loading and discharging and how long the duration of the certain voyage is.

Yes, I'll leave it to you. Thank you. Thank you.

Next in line, we have Damon Mullins from Value Investors Edge. Please go ahead. You are now unmuted.

Hi, good afternoon. Thank you for taking my questions. I wanted to start with a modeling question. Could you confirm whether the sequential increase in interest expenses is attributable to Q4 not benefiting from the accounting of the monetization of the swaps in early 2024?

Thank you for your question. Regarding our interest rate swaps, they were terminated late in March last year. We did amortize that gain throughout the regional maturity of the interest rate swaps, which were in August and September. After that, we have been obviously have a floating interest rate. I hope that answered your question.

So I think for modeling purposes, you should just look at our 195 basis point spread and software rates. And there are currently no interest rate hedges that are in effect. Yeah, correct.

Perfect. It was simply to confirm whether the increase was attributable to that. And I have a question more on the macro side. If a ceasefire agreement is reached in Ukraine, could you provide some commentary on your expectations for the rebuilding? It may have a larger impact on mid-sized bulkers, but do you anticipate any material impacts on cape sizes as well?

Yeah, hi there. This is obviously very difficult to predict at the moment. And we don't really know how the infrastructure looks like in the region. But I think it's safe to assume that trades out of Ukraine will start before the trades out of Russia. So if the grain elevators are in decent capacity, I assume we will have some good operating for the Panamaxes there. when it comes to the ton mile scenario it actually looks uh figuratively on the cape sizes like that will have a bigger boost than the small sizes with the um with the iron or coming out of ukraine specifically super max's handy size is obviously if the infrastructure is struggling uh i think they will also have an upside to uh to this uh potential peace agreement uh but still the steel exports out of Russia and the fertilizer export out of Russia, which have predominantly been done on the smaller sizes. We think that will lag after trades from Ukraine start first, if that makes sense.

Yeah, that's very helpful. That's everything for me. Thank you for taking my questions. Thank you.

As a reminder, press five star to ask a question. There will be a brief pause while new questions are being registered. As no one else has lined up for questions in this call, I'll now hand it back to the speakers for any closing remarks.

Okay, thank you everyone for listening in and thank you for your questions. As always, if you have a question that you forgot to answer, feel free to reach out afterwards. Thanks again and we will speak to you on our next conference call.